A WEEK after state-owned Eurocypria announced the termination of operations, economists say there is little the government can to prevent Cyprus Airways (CY) from a similar fate.
The national carrier, which is 70 per cent state-owned will now pay the price for previous failed corporate decisions and the inflexibility which prevented it from capitalising on its previous restructuring process, said European University economics professor Marios Mavrides.
The previous restructuring allowed the company to return to profitability in 2007 after suffering massive losses exceeding €120 million in the preceding four years.
“The only thing that could currently save Cyprus Airways is to find a strategic investor to inject cash into the company,” Mavrides told the Sunday Mail. “But nobody would put money into this company now that its book value is already negative,” he added.
Bernard Musyck, associate professor in economics at Frederick University said that as long as the state remains the majority shareholder, the company may not survive, let alone become a success story like other previously-unprofitable state-owned airlines did after privatisation, such as British Airways, Iberia, Alitalia and Olympic
“For many years the company offered a convenient place for politicians to arrange jobs for boys,” said Musyck, an expert on aviation economics.
He said Cyprus Airways was only one of the very few remaining state-owned airlines in Europe, which was a liability for the carrier.
Cyprus Airways saw its personnel cost rise in 2009 to €71.6 million from €68.8 million in 2008, even after cutting staff by 48 to 1,417. The company reported €3.3 million in losses last year after total revenue fell 20 per cent to €249 million, compared to a €1.7-million profit in 2008.
“There is such fierce competition in the air transport market that no government run company can survive in the long run,” Musyck said.
He said being state-run, prevented a company from selecting and employing “the best skills in the market”, which in final analysis determines a company’s success or failure.
“They are sitting in a dinghy taking on water. They must throw their luggage overboard and prevent water from coming in,” said Musyck. This requires firing redundant or incompetent staff and making the airline’s cost structure similar to that of competitors if they want “to remain in the game”.
This “extra luggage” is reflected in the ratio of total personnel expenditure to total revenue. It stood at 29 per cent in the case of Cyprus Airways last year, compared to 22 per cent in 2008. By contrast, this ratio was below 17 per cent in the case of Singapore Airlines in the financial year that ended on March 31, 2010, and 15 per cent a year earlier.
Singapore Airlines is winner of some of the world’s best known airline awards. It won the 2008 and 2007 Airline of the Year Skytrax award and was runner up in 2010 and 2009. For 18 consecutive years, the airliner won the Best Airline award of Business Traveller (Asia Pacific), while it won the Best Global Airline award of the American Condé Nast Traveler Reader’s Choice a total of 22 times in the past 23 years, to name a few.
For Cyprus’s national carrier to increase revenue and minimise costs, Musyck continued, the company would need to rethink all aspects of its operations.
“This includes improved marketing and yield management” to sell the €1,000-ticket to whoever is willing to pay for it but also fill the rest of the aircraft with travellers who got a bargain at €100,” he said, adding that CY was going in the opposite direction.
“Their decision to satisfy those politicians who asked the company to increase its flight frequency to Brussels from twice a week to five times a week, coincided with Ryanair’s decision to also fly from Brussels to Larnaca twice a week. Will Cyprus Airways ever fill its planes on that route?” Musyck said a Cyprus Airways economy ticket to Brussels costs twice as much as a Ryanair ticket, including luggage and other supplementary charges.
After Finance Minister Charilaos Stavrakis said on Tuesday that CY will end 2010 with up to €30 million in losses, the company issued a statement three days later stating that “drastic measures needed to be taken immediately,” and that “sacrifices will be needed from everyone”.
While the airline apparently seems to acknowledge its plight, the first corporate measure it announced was of “social nature,” Musyck said. It advertised vacancies on Friday for personnel to carry out Eurocypria’s flight programme but hiring former Eurocypria staff does not necessarily mean that Cyprus Airways will hire people with the right skills, according to Musyck.
